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Stock Market's Response to Real Output Shocks: Connection Restored but Delayed
Author(s) -
Ülkü Numan,
Kuruppuarachchi Duminda
Publication year - 2015
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12056
Subject(s) - vector autoregression , stock market , economics , stock (firearms) , econometrics , monetary economics , autoregressive model , engineering , mechanical engineering , paleontology , horse , biology
We propose a vector autoregression with asymmetric leads model to combine the forward‐looking, contemporaneous, and delayed responses of the stock market to output news. Using this approach, we document that the stock market's connection to real output, shown by B inswanger to have been broken since the early 1980s, has been restored after 1998, however, via a delayed response. Subperiods mainly differ in terms of delayed response, portraying an interesting evolution of market participants' response to macroeconomic information based on the realized persistence of output shocks.